California

Buzz Over Google IPO Dissipates Amid Snags

Frustration grows over a confusing process and the company's failure to register some shares.

SAN FRANCISCO — The hallelujahs have turned to hand-wringing as confusion and a stumbling economy are souring the zeitgeist surrounding Google Inc.'s initial public offering.

Back in April, Silicon Valley frothed over the prospect of Google going public and buoying a region still recovering from the dot-com crash.

But a perplexing method of bidding for shares, a lofty stock price that may exclude many individual investors and fears that Google's lifeblood of Internet advertising may be slowing have killed much of the giddy buzz over the Mountain View, Calif.-based search-engine company.

"For a while the Valley was saying, 'God, we can't wait for Google. It's going to make all the difference -- open the door again. We're heading back to Nasdaq 5000,' " said Peter Sealey, a co-director of UC Berkeley's Center for Marketing and Technology, who does not plan to bid for shares.

Now, he said, the Valley just wants to get the whole thing over with.

With expectations so high, analysts and high-tech executives said, there was little chance that Google could do anything but disappoint. Google's keen search engine, colorful logo and storied work culture created legions of devoted users, while its search-related ads pulled in billions of dollars.

The company registered on April 29 for an IPO, including an appropriately quirky letter from the founders that promised to defy convention: They would use an unusual auction to allocate shares, retain 10 times the voting rights of average shareholders, and keep growth strategies and financial expectations secret.

The process of deciding exactly when Google would go public, who would get shares and how much they were worth has been racked with confusion and, in recent weeks, bitterness.

Google said Friday that it might have to spend as much as $25.9 million to buy back 23.2 million shares it had sold to employees and consultants but failed to register as required by law. With a weighted average price of $2.86 a share, however, it's likely that those shareholders will sell on the open market -- where a share is expected to fetch $108 to $135 -- rather than accept the buyback offer.

California securities regulators said they were investigating Google's failure to register those shares. That disclosure created even more confusion about the timing of the offering.

News outlets reported Thursday that Google had planned to hold the IPO on Tuesday, but delayed it by a week because of administrative snags. But Mark Mahaney, an analyst with American Technology Research, said the Tuesday IPO was an "urban myth."

"They have had some minor procedural hiccups that are very common, and everyone's jumping all over them for it," said James Currier, who recently sold his Internet company, Tickle Inc., to Monster Worldwide Inc.

Currier, who said he doesn't plan to bid on the shares, was nonetheless frustrated with Google. He and other techies have high hopes for the auction model of conducting IPOs, and they think it's being sullied by the growing frustration with the Google IPO.

"Google used to be everybody's darling. This IPO process has ... turned a lot of that love into a lot of hate," he said.

Or something in between.

"There's no shortage of people out there interested in trash-talking Google's offering and who, like me, may be interested in buying Google's shares at the lowest possible price," said Barry Randall of the First American Technology Fund.

Google has been unable to defend itself because of "quiet period" regulations.

"The only thing they might have done wrong is predict a price range," said Mark Cuban, an Internet billionaire who has stakes in two Google competitors. "My guess is that they didn't want to but their bankers made them do it."

Cuban said he wouldn't bid on Google shares because he preferred stocks with dividends. Randall, though, plans to bid.

"It's a good company at a certain price," he said, adding that he wouldn't be upset if his bid didn't win. "I'm not really worried about being left behind by some sort of rocket ship here."